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Identification and Measurement of Relationships Concerning Inflow of FDI: The Case of the Czech Republic

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  • Petr Kral

Abstract

The main goal of the paper is to obtain quantitative evidence describing determinants of FDI in the case of the Czech economy in order to empirically support the decision-making process within the Czech National Bank. The paper builds on the recent economic literature and at the same time examines FDI inflows from the perspective of a multinational company. Furthermore, the microeconomic and macroeconomic characteristics of a potential host country which are crucial for multinational companies' investment decisions are examined. Since government investment incentives seem to play a role in attracting foreign direct investors the paper provides some details on the Czech economic environment regarding this issue. To reach those objectives a cointegration analysis and error-correction model is used to identify the most important determinants of FDI inflows in the Czech Republic by developing an econometric model for analytic purposes. The empirical results presented in the paper support the hypothesis that the most significant determinants of FDI inflow into the Czech economy correspond to the theoretically considered and empirically tested factors. The paper, therefore, provides some basis for analysing the character of foreign investment and assessing the role of the government in attracting FDI inflows to the Czech Republic. More specifically, the empirical results suggest that establishing and maintaining macroeconomic stability and external equilibrium, offering a consistent and competitive package of investment incentives and promotion, and an efficient financing infrastructure, public governance regime and social system are the key factors promoting foreign direct investment inflows.

Suggested Citation

  • Petr Kral, 2004. "Identification and Measurement of Relationships Concerning Inflow of FDI: The Case of the Czech Republic," Working Papers 2004/05, Czech National Bank.
    • Handle: RePEc:cnb:wpaper:2004/05
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    File URL: https://www.cnb.cz/export/sites/cnb/en/economic-research/.galleries/research_publications/cnb_wp/cnbwp52004.pdf
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    References listed on IDEAS

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    1. Blomström, Magnus & Kokko, Ari, 2003. "The Economics of Foreign Direct Investment Incentives," EIJS Working Paper Series 168, Stockholm School of Economics, The European Institute of Japanese Studies.
    2. Marin, Dalia & Lorentowicz, Andzelika & Raubold, Alexander, 2002. "Ownership, Capital or Outsourcing: What Drives German Investment to Eastern Europe?," CEPR Discussion Papers 3515, C.E.P.R. Discussion Papers.
    3. Pain, Nigel & Wakelin, Katharine, 1998. "Export Performance and the Role of Foreign Direct Investment," The Manchester School of Economic & Social Studies, University of Manchester, vol. 66(0), pages 62-88, Supplemen.
    4. Nigel Pain, 2000. "Inward investment and technical progress in the United Kingdom manufacturing sector," National Institute of Economic and Social Research (NIESR) Discussion Papers 175, National Institute of Economic and Social Research.
    5. Florence Hubert & Nigel Pain, 2002. "Fiscal Incentives, European Integration and the Location of Foreign Direct Investment," Manchester School, University of Manchester, vol. 70(3), pages 336-363, June.
    6. Nigel Pain, 1997. "Export performance and and the role of foreign direct investment," National Institute of Economic and Social Research (NIESR) Discussion Papers 131, National Institute of Economic and Social Research.
    7. Vladimír Benáček & Alena Zemplinerová, 1997. "Foreign direct investment in the czech manufacturing sector," Prague Economic Papers, Prague University of Economics and Business, vol. 1997(2).
    8. Florence Hubert & Nigel Pain, 2000. "Inward Investment and Technical Progress in the UK Manufacturing Sector," OECD Economics Department Working Papers 268, OECD Publishing.
    9. Mr. Ewe-Ghee Lim, 2001. "Determinants of, and the Relation Between, Foreign Direct Investment and Growth: A Summary of the Recent Literature," IMF Working Papers 2001/175, International Monetary Fund.
    10. Nigel Pain & Dawn Holland, 1998. "The Diffusion Of Innovations In Central And Eastern Europe: A Study Of The Determinants And Impact O," National Institute of Economic and Social Research (NIESR) Discussion Papers 137, National Institute of Economic and Social Research.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Jonathan Jones & Ilona Serwicka & Colin Wren, 2020. "Motives for foreign direct investment location in Europe and EU enlargement," Environment and Planning A, , vol. 52(8), pages 1681-1699, November.
    2. Peter Bolcha, 2008. "O výpočte fiškálneho dopadu investičnej podpory [On calculus of fiscal impact of investment incentives]," Politická ekonomie, Prague University of Economics and Business, vol. 2008(2), pages 257-274.
    3. Eva Zamrazilová, 2007. "Přímé zahraniční investice v české ekonomice: rizika duality a role trhu práce [Foreign direct investments in the czech republic: selected macroeconomic issues]," Politická ekonomie, Prague University of Economics and Business, vol. 2007(5), pages 579-602.
    4. Ilya Bolotov & Radek Čajka & Kateřina Gajdušková, 2013. "The Economic Balance of the Czech Republic and Slovakia During the Economic Crisis," Prague Economic Papers, Prague University of Economics and Business, vol. 2013(4), pages 504-523.
    5. Daniel Anarfi & Kofi Ampadu Boateng & Kwabena Adu Ababio, 2016. "Determinants of Return on Equity for a Sustainable Growth of the Manufacturing Industry in the Czech Republic," European Journal of Business Science and Technology, Mendel University in Brno, Faculty of Business and Economics, vol. 2(1), pages 43-52.
    6. Bellak, Christian & Leibrecht, Markus & Riedl, Aleksandra, 2008. "Labour costs and FDI flows into Central and Eastern European Countries: A survey of the literature and empirical evidence," Structural Change and Economic Dynamics, Elsevier, vol. 19(1), pages 17-37, March.

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    More about this item

    Keywords

    Determinants; empirical analysis; foreign direct investment; incentives;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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